Midyear predictions: Changes afoot

With the downturn in e-consulting success stories, columnist Tom Rodenhauser predicts that more traditional buyouts will take place. He also addresses the issue of consulting firms selling to repeat customers.

Deals such as First Consulting Group, with expertise in healthcare, buying Web specialist Doghouse Productions were the norm just a few months ago. FCG’s purchase allowed the firm to offer “complete” e-services.

But now that the e-luster has tarnished a bit, you’ll be hearing about more traditional acquisitions. Grant Thornton has publicly stated its desire to sell its consulting practice. And we expect PricewaterhouseCoopers to push the sales idea—either in part or in whole—by summer’s end. Be assured that one of those two will be gone before the leaves change in the fall. And there is always a market for companies in a funk, such as Navigant and Cambridge Technology Partners.

Like a Friday night mixer, the second half of 2000 will see much dancing among consulting players. The exclusive alliances and partnerships that choked the industry the past two years will give way to formal acquisitions. A seller’s market has shifted to allow buyers of consulting firms more than a few plump opportunities.

Heard on the streetHow important are client relationships? Repeat business amounted to 66.4 percent of total consulting fees, according to the Association of Management Consulting Firms. The cost-of-sale is almost three times higher to new clients, which severely impacts margins. But there is a danger in selling too much to your same customers: What happens when a company pulls an AT&T and slashes annual consulting expenditures in half?Inside Consulting is written by Tom Rodenhauser as a free weekly supplement to The Rodenhauser Report. The report informs senior advisors and business executives of consulting trends and best practices. Subscription cost is $295 per year for 10 issues. Copyright 2000, Consulting Information Services, LLC. Reproduction is prohibited. Quotation with attribution is encouraged.